OECD: Agreement reached on the two-pillar solution

OECD: Agreement reached on the two-pillar solution

On 8 October 2021, the OECD announced an agreement for the two-pillar solution to address tax challenges arising from the Digital Economy.

The major reform finalised at the OECD will ensure that multinational enterprises (MNEs) will be subject to a 15% minimum tax rate as of 2023.

The final agreement was signed by 136 out of 140 countries and jurisdictions, including Mauritius, Botswana, South Africa or Senegal. In addition, Estonia, Hungary, and Ireland joined the agreement on an EU level, and all G20 countries now support the two-pillar solution.

The four countries that have not yet joined include Kenya, Nigeria, Pakistan and Sri Lanka.

Pillar One deals with re-allocating taxing rights over MNEs from their home countries to market jurisdictions regardless of whether MNEs have a physical presence there.

Under Pillar Two, a global minimum corporate tax rate will be implemented. The rate is set at 15%. It will apply to companies with revenue above EUR 750 million. The OECD provides that some associated benefits are that it will stabilise the international tax system and increase tax certainty for taxpayers and tax administrations.

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